Five Quick Ideas
We just returned from a week away. I’m out of town tomorrow (just for the day) for a late-afternoon presentation – it’s been a busy summer! Here are some of the ideas that I read today or thought about.
1. The FOMC
The FOMC released a depressing statement, describing the deceleration of the economy. But, they ended by simply promising that, “The Committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”
If the economy is slowing again, why not take action now? Lots of possibilities, including (1) waiting for the possibility of worse times; (2) wanting to be able to respond if the EU has further crisis; and (3) believing that they don’t have the ability to do much more (so they’re better off promising future action than actually implementing it).
2. The ECB
Before the market opens (on Thursday morning), we’ll hear what the ECB is going to do. People have high expectations (which is leading some people to suggest that the only thing that can happen is that the ECB will disappoint us). Kemal Dervis suggests that Draghi and the ECB must do three things if they want a decisive turning point in the Eurozone crisis:
A. The ECB’s bond purchases must express the clear intention of reducing sovereign interest rates to sustainable levels (which are at least 200 bps below their July averages).
B. Eurozone leaders and parliaments (and courts) must push ahead with institutional reforms to establish the ESM, a banking union and partial debt mutualization.
C. They must realize that front-loaded austerity measures tend to be self-defeating. They trigger a downward spiral of output, employment and tax revenues.
He closed by saying that if the “big bazooka” is not put in place, “the eurozone’s position – financially, politically, and socially – will soon become undefendable.”
Steven Roach (Morgan Stanley) said that, over the last 18 quarters, annualized growth in real consumer demand has averaged only .7%, compared to the 3.6% growth trend in the decade before the crisis. Of course, this is not surprising when you consider high debt, little savings and underwater homes.
Since consumer spending accounts for 70% of GDP, we must look at what can help us recover (from the other 30%). Of course, we’re not going to get much from government spending. We’ll have to look to capital spending and exports. These two combine to account for 24% of GDP (remember, we’re talking about exports and ignoring imports right now). Capital spending is 10% of GDP and is below its 13% level in 2000. Of course, with the rest of the world slowing, it will be difficult to increase our exports (especially with the dollar increasing in value).
4. Shocking Gun Numbers
Naomi Wolf wrote an interesting piece that included some amazing gun numbers:
A. some estimates say that there are more than 20 mass shootings per year in the U.S.
B. We have 90 guns for every 100 citizens.
C. We have 5% of the global population, but we have between one-third and one-half of the world’s civilian-owned guns (approximately 270 million weapons).
D. We have 30,000 deaths from gun violence each year – most are suicide, but more than 12,000 are homicides.
5. Random Facts
IMF Managing Director Christine Lagarde said that the global economy is experiencing a widespread “decline of confidence”.
The Treasury is planning on offering floating rate notes next year. This may help attract investors who want to buy long-term bonds, but don’t want to risk locking money up for a long time when rates could go up.
There has been an increase in health insurance policies that require pre-authorization before a procedure. Now, approximately 4.7% of all procedures require pre-authorization. If you just look at hospitals, surgery centers and imaging centers, it’s 30%.
Half the jobs in the nation pay less than $34K / year.
Have a great weekend.
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